Microsoft Corp today shocked Wall Street with disappointing results and said it would cut 5,000 jobs or about 5 per cent of its and stop offering profit forecasts for the rest of the fiscal year, even as it posted a profit of $4.17 billion, or 47 cents per share, in its fiscal second quarter ended December 31, versus a profit of $4.71 billion, or 50 cents, a year earlier.
Analysts were looking for earnings per share of 49 cents. Revenue rose 2 per cent to $16.63 billion, missing the average analyst forecast of $17.1 billion.
Its job cuts amount to roughly 5 per cent of its estimated 95,000 work force. The company said the job cuts would reduce operating costs by $1.5 billion as it prepares for lower revenue and earnings in the second half of the year.
The software giant said the moves were driven by deteriorating global economic conditions and lower client revenue, resulting from weakness in the PC market and a shift to lower-priced notebook models.
The job cuts bely earlier reports that Microsoft's cost-cutting plans would not involve a major sacking of staff and will take place over over the next 18 months, including 1,400 jobs today.
Microsoft's first-ever companywide firings will take place in nearly all areas, including research, sales and marketing, the company said in a statement on Thursday. The measure, announced with the company's second-quarter earnings, will save $1.5 billion, Microsoft said.
The global recession has not spared the computer industry, and chief executive officer Steve Ballmer is under pressure to reduce costs as sales growth dries up. The company's Windows division, which accounts for about a quarter of sales, is suffering after personal computer shipments rose at the slowest rate in six years in the fourth quarter.
Second-quarter net income was $4.17 billion, or 47 cents a share, compared with $4.71 billion, or 50 cents, a year earlier. Sales were $16.6 billion in the period that covers the last three months of 2008.
''Economic activity and IT spend slowed beyond our expectations in the quarter,'' Microsoft chief financial officer Chris Liddell said in the company statement. ''We acted quickly to reduce our cost structure and mitigate its impact.'' He added that company would no longer offer revenue and earnings-per-share forecasts for the rest of its fiscal year, ending June 30
Sales and earnings will almost certainly drop in the second half compared with a year earlier, and the company needed to cut costs to allay concern among investors that its expenses were too high given the state of the economy.
Microsoft had 94,286 employees at the end of September, an increase of 55 per cent since June 2005. The company has made jobs cuts in the past, but they were smaller and limited to a single unit or product.
Growth in the PC Windows unit was stymied by slowing demand for all but the cheapest machines. While consumers and businesses hold off buying computers with the latest premium version of Windows, demand is increasing for netbooks - machines that cost less than $500 and use the cheaper Windows XP or the rival Linux operating system.
To reduce costs, Microsoft is also delaying parts of a planned campus expansion and letting some building leases expire, a spokesman said this week. Microsoft would eliminate jobs in research and development, marketing, sales, finance, legal, human resources and information technology over the next 18 months, including 1,400 jobs on Thursday itself.
The company said these moves would help cut its annualized operating expense by about $1.5 billion, and reduce fiscal year 2009 capital expenditure by $700 million.
The company will also cut travel spending by 20 percent, eliminate merit salary increases in September, and significantly reduce spending on vendors and contingent staff. It also plans to scale back budgets for marketing and the expansion of its Puget Sound campus.